medicare Indicators

The dramatic expansion of health care coverage that received final approval in Congress on Sunday means that controlling medical costs will be more important than ever. As The Concord Coalition has repeatedly pointed out, expanding coverage without curbing costs is a recipe for fiscal disaster.

The legislation promises significant savings through future reductions in Medicare provider payments. It also plants the seeds of many cost control strategies with pilot programs and demonstration projects. These may bear fruit at some future point but success is far from certain. It will require concerted and cooperative efforts by state and federal officials, hospitals, doctors, insurance companies and millions of patients. It will also require the political will to make the savings stick when they begin to pinch.

An obvious case in point is the new tax on high-cost insurance plans, which many analysts believe is the single most important cost control measure in the legislation. An amendment proposed by the House and expected to be approved by the Senate this week under the fast-track “reconciliation” process, moves the effective date of this tax from 2013 to 2018.

While the long-term savings would be improved by expanding the likely reach of the tax to more plans, this depends on a future Congress and president allowing the change to take effect in 2020 as planned. There is reason to be skeptical. Opponents are already pointing out that they will have plenty of opportunities to kill, or further dilute, the tax before then.

On the spending side, it will take considerable efficiency improvements and discipline to meet the new reimbursement standard for Medicare provider payments. Then there is the politically challenging provisions that would ratchet back the growth rate of subsidies for the purchase of insurance starting in 2019.

Attempts may also be made to further weaken the Independent Payment Advisory Board (IPAB), which has been established as a constant watchdog over growing costs. As for the pilots and demonstrations, there is no guarantee that they will work or that Congress will give them broader application if they do work.

So while robust deficit reduction projections from the Congressional Budget Office offer some reassurance about the legislation, there is a great deal of downside risk that these projections will prove to be optimistic.

And even if everything goes according to plan, the promised deficit reduction will be quite modest compared to the trillions of dollars that current projections indicate the country will add to its debt in the coming decade. Political leaders will still need to look for large amounts of additional savings and revenue – both in the health care system and elsewhere. Moreover, they will have to do so with much of the potential savings having already been claimed for the expanded coverage in the new legislation.

This is not the end of the cost control fight. It is a very tentative beginning.